Selling, General and Administrative Expenses.
During 2019, we actively committed funds to developing our commercialization program for Firdapse® and
have continued to incur commercialization expenses, inclusive of sales, marketing and other commercialization related expenses as we have begun our sales program for Firdapse®. We had no
product sales or selling expenses in 2018.
Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting,
corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, cost for preparation for commercialization, and professional fees for legal, information technology, accounting, and
consulting services.
Stock-Based Compensation.
We
recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation
model in calculating the fair value of the awards.
Income Taxes.
At December 31, 2019 and 2018, respectively, we had net operating loss carryforwards and other credits of approximately $41.5 million and
$79.0 million available to reduce future taxable income, if any. We have evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As of December 31, 2019, and December 31, 2018, based on
our long history of operating losses, we have concluded that it is more likely than not that the benefit of our deferred tax assets will not be realized. Accordingly, we have provided a full valuation allowance for deferred tax assets including NOL
and tax credit carryover as of December 31, 2019 and December 31, 2018. The valuation allowance decreased by $6.8 million and increased by $9.2 million during 2019 and 2018, respectively.
As required by ASC 740, Income Taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
We are currently
conducting a study of the availability for use of our net operating loss carryforwards and other credits under Section 382 of the Internal Revenue Code, and the results of this study could impact the amounts of net operating losses and other
credits that we have available for use in future periods, and the timing of their use.
Recently Issued Accounting Standards.
For discussion of recently issued accounting standards, please see Note 2, Basis of Presentation and Significant Accounting Policies, in the
consolidated financial statements included in this report.
Non-GAAP Financial Measures.
We prepare our consolidated financial statements and notes thereto which accompany this report in accordance with U.S. GAAP. To supplement our financial
results presented on a U.S. GAAP basis, we may use non-GAAP financial measures in our reports filed with the Commission and/or our communications with investors.
Non-GAAP measures are provided as additional information and not as an alternative to our consolidated financial statements presented in accordance with GAAP. Our
non-GAAP financial measures are intended to enhance an overall understanding of our current financial performance. We believe that the non-GAAP financial measures we
present provide investors and prospective investors with an alternative method for assessing our operating results in a manner that we believe is focused on the performance of ongoing operations and provide a more consistent basis for comparison
between periods.
The non-GAAP financial measure that we present excludes from the calculation of net income the
expense associated with stock-based compensation. Further, we often report non-GAAP net income (loss) per share, which is calculated by dividing non-GAAP net income
(loss) by the weighted average common shares outstanding.
Any non-GAAP financial measures that we report should
not be considered in isolation or as a substitute for comparable U.S. GAAP accounting, and investors should read them in conjunction with our financial statements and notes thereto prepared in accordance with U.S. GAAP. Finally, the non-GAAP measures of net income (loss) we may use may be different from, and not directly comparable to, similarly titled measures used by other companies.
Critical Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements
requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the
reported revenue and expenses during the reporting periods. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and
other factors we believe are reasonable based on the circumstances, the results of which form our managements basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
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